Phasing Out Incandescent Lamps: LED Industry's 'Revival' Still Needs Time

After European and American countries successively introduced incandescent lamp phase-out plans, the withdrawal of incandescent lamps from the Chinese market has also entered a countdown.

　　On November 4, the National Development and Reform Commission (NDRC) announced that, together with the Ministry of Commerce, the General Administration of Customs, the State Administration for Industry and Commerce, and the General Administration of Quality Supervision, Inspection and Quarantine, it had issued the 'Announcement on Gradually Prohibiting the Import and Sale of General-Service Incandescent Lamps' (hereinafter referred to as 'the Announcement'), deciding that from October 1, 2012, the import and sale of general lighting incandescent lamps would be gradually prohibited in stages according to wattage.

　　This was once regarded as a major positive development for LED application lighting—an industry expected to largely replace the traditional lighting sector in the future. Directly affected by this news, LED concept stocks were immediately hyped by the market, with gains rising to the top of the concept sector. Among them, Leiman Optoelectronics (雷曼光电), which produces LED lighting products, even hit the daily limit-up several times.

　　Meanwhile, interpretations that the LED industry will usher in huge development opportunities began to flood the market, but the reality may not be so. "The substantive opportunities brought to the LED industry by the introduction of the incandescent lamp phase-out roadmap have been exaggerated." On November 9, Zhang Xiaofei, director of the Gaogong LED Industry Research Institute, told the Economic Observer bluntly.

　　According to the aforementioned joint "Announcement" details from the ministries, China's roadmap for gradually phasing out incandescent lamps is divided into five stages. The first step is to ban the import and sale of ordinary lighting incandescent lamps of 100 watts and above, but this will only begin to be implemented from October 1, 2012, which is still nearly a year away.

　　More than that, according to a reporter from the Economic Observer, the application of 100-watt incandescent lamps in the current market is actually quite limited, mainly concentrated in township areas, industrial and mining sites and a few other public domains. "In fact, the number of 100-watt incandescent lamps in use is limited. This part of the market is highly price-sensitive and is unlikely to accept LED lighting, a relatively high-priced product, in the short term." Feng Jun, chairman of Shenzhen Yite Lighting, an LED lighting manufacturer, believes that the substitution effect of LED lighting on the 100-watt incandescent lamp market is actually quite small.

　　Data from the Gaogong LED Industry Research Institute show that in current downstream LED lighting applications, 70% of the market is concentrated in the outdoor LED lighting field, of which the vast majority are municipal projects. "As a lighting technology using semiconductors, LED lighting projects are priced relatively high, so in the early stages of the market, government investment is often needed to drive demand," Zhang Xiaofei analyzed.

　　But on the other side of reality, according to this newspaper's investigation, it is precisely because the current LED outdoor lighting market is overly dependent on municipal projects that it is now facing many difficulties. Taking LED streetlight projects as an example, this newspaper interviewed a number of LED lighting companies in the Pearl River Delta, all of which said: "Currently, 80% of LED streetlight projects in the market are in a state of loss."

　　A senior executive from Shenzhen Huaye Group, which engages in LED streetlight production, told the Economic Observer that LED energy-saving renovation projects are mostly municipal projects, with specific operations often being the "top leader" project of the local government. "Since the implementation cycle of LED streetlight projects is rather long, the change of supervisory leaders often brings a certain degree of uncertainty to the project." Responsible persons from multiple LED streetlight companies reported to our newspaper that LED streetlight projects often encounter difficulties in receiving payments.

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　　Against this backdrop, the EMC model has begun to be widely applied to LED streetlight projects. EMC, namely Energy Management Contract, is a new type of market-based energy-saving mechanism, whose essence is an energy-saving business approach that uses reduced energy costs to pay for the full cost of energy-saving projects. By adopting the EMC model, buyers do not need to pay any additional costs and can replace old energy-consuming equipment with new energy-saving equipment at "zero cost".

　　However, according to an investigation by the Economic Observer, constrained by multiple factors, the EMC model is only "attractive in appearance" on the Chinese LED lighting market. "Since the EMC model uses the saved electricity costs to pay the project construction costs in installments, its project cycle is often longer than that of ordinary engineering projects." The aforementioned senior executive of Huaye Group believes that this places greater capital occupation pressure on LED companies.

　　Another dilemma is that, according to the EMC model, the higher the energy consumption and electricity costs of existing streetlights, the greater the amount of costs saved, and the more of it can be used to offset the construction funds for LED projects. "But the reality in China is that electricity prices are relatively low, which further extends the construction cycle of EMC projects," the aforementioned senior executive of Huaye Group stated frankly.

　　According to information gathered in the Pearl River Delta region, where LED lighting companies are concentrated, with multiple unfavorable factors at play, LED lighting companies are currently struggling to move forward. Public information from the Shenzhen Semiconductor Lighting Industry Development Promotion Association shows that there are approximately 1,300 LED companies in Shenzhen alone. Since the beginning of this year, more than 80 LED companies in Shenzhen have quietly closed down or gone into liquidation. Among them, Mao Guojun, chairman of Shenzhen Junduoli Lighting, an LED lighting company, once "disappeared" owing 80 million yuan in debts, an incident that caused considerable shock in the Shenzhen industry.

　　"The figures released by the association should still be conservative. The number of LED companies that have closed down this year in Shenzhen alone is at least over a hundred." Feng Jun, Chairman of Yite Lighting, told the Economic Observer that, against the backdrop of the LED street light industry—which currently occupies the main market—facing heavy difficulties, quite a number of companies have begun shifting to indoor LED lighting.

　　It is understood that companies that previously focused on LED street lights—including Shenzhen Huaye Group and Dongguan Qinshang Optoelectronics—have begun extending into the LED indoor lighting business. "Indoor projects are different from municipal projects; they are more price-sensitive," Feng Jun believes. Although LED lighting product prices have generally dropped by about 30% since the beginning of this year, there is still a significant gap from the level of acceptance in the large-scale commercial market.

　　By contrast, the incandescent bulb replacement market—mainly concentrated in rural towns and villages—has an even weaker price tolerance. "The announcement of the incandescent bulb phase-out roadmap is more of a policy-oriented benefit for the LED industry." Several LED lighting company executives admitted that waiting for the "spring" of the LED lighting industry still takes time.